No Sales Tax for CA Patients With State ID Cards When 64 Passes

From Dale Gieringer, October 24: State Board of Equalization member Jerome Horton points out that Prop 64’s sales tax exemption for MMJ patients with a state ID card should become effective immediately upon passage of Prop 64 on Nov 9th. Prop 64 imposes other, new taxes on MMJ effective Jan 1, 2018 —a 15% excise retail tax and a $9.25/oz production tax, from which medical users are not exempt – but the sales tax exemption takes effect immediately.

The BOE’s message —see below— also states that the exemption applies to the full amount of the state sales tax, not just the 5.5% part of it that goes to the state, but also the additional 2% that goes to local governments. (BOE sources say they are still not certain as to whether it also applies to the local district taxes ranging from 0.25% – 1.5% that are tacked on to the basic 7.5% sales tax).

The upshot is that MEDICAL MARIJUANA PATIENTS SHOULD APPLY FOR A STATE ID CARD IMMEDIATELY IF THEY WANT TO AVOID THE STATE SALES TAX AS OF NOV. 9th. State ID cards are issued by patients’ local County Dept of Health. Private ID cards by other entities don’t count. For details on the state ID program, see
http://www.cdph.ca.gov/programs/MMP/Pages/Medical%20Marijuana%20Program.aspx

At present, only about 6,000 of California’s 750,000 to 1 million medical marijuana users have state ID cards, so the immediate impact on state tax revenues is likely to be minimal.

PS: Subsection 34011(g) of AUMA reads as follows:

The sales and use tax imposed by Part 1 of this division [i.e., the standard 7.5% state sales tax] shall not apply to retail sales of medical cannabis, medical cannabis concentrate, edible medical cannabis products or topical cannabis as those terms are defined in Chapter 3.5 ofDivision 8 ofthe Business and Professions Code when a qualified patient (or primary caregiver for a qualified patient) provides his or her card issued under Section 11362. 71 of the Health and Safety Code and a valid government- issued identification card.

According to an informal opinion from the State Legislative Counsel, the 5.5% partial tax exemption language in Proposition 64 is actually a full sales tax exemption on sales of medical marijuana and it starts immediately – the day after the proposition passes. The resulting revenue loss for 2017 is estimated to be as much as $49.5 million based on BOE’s 2014 data, and will likely increase each year thereafter. Local cities who anticipate preserving their revenue from medical marijuana may get nothing since proposition 64 provides for a complete exemption from medical marijuana.

With a full sales tax exemption, most consumers will be motivated to secure the easily obtainable medical marijuana card from the Dept. of Health, which has few restrictions or limitations, rather than paying taxes on recreational marijuana. This will be devastating to state and local governments, who will be on the hook for mitigating the negative criminal impacts of getting high in our communities.

With hundreds of illegal dispensaries operating in Los Angeles, in addition to the 40% noncompliance rate on the collection of tax revenue in the marijuana industry, if Proposition 64 passes, enabling over 23 million Californians to smoke or ingest weed, the Board of Equalization and other taxing agencies will not have sufficient personnel or the legal authority or resources to protect our staff, taxpayers, and the public from criminal abuse or to ensure that the proper amount of taxes are being reported.

I hope you find this information helpful and that you share it with those who may benefit from it.